Monday, June 25, 2012

New home sales (top chart) in May were quite a bit stronger than expected (369K vs. 347K). Those who see the glass as half empty will note that sales were still extremely depressed, down almost 75% from their 2005 high. Those, like me, who see the glass as half full will note that sales were up a very strong 35% from last year's low; they will also note that housing starts, which must lead new home sales, are up 48% from their recession lows. These charts use a semi-log scale for the y-axis in order to reflect the magnitude of change on the margin in these two indicators.

To be sure, the level of sales and starts remains very depressed from an historical perspective. But from an economist's perspective, it's not the level that is important, it is the change on the margin. Correctly viewed, there has been a very significant improvement in the housing market over the past few years.

8 comments:

No recession has started unless the year over year change in housing starts is negative..with residential investment at only 2.3% of GDP if a recession isgoing to occur it is going to have to get its force from some of the other GDPcomponents

In the Seattle area, home construction and sales are practically booming. Yesterday I went to a new development near Issaquah (east Seattle suburbs) and in 6 weeks the saleswoman said they had sold 9 houses, with another 8 or so reserved in another part of the development (with nice views). All this despite the fact that only 1 house - the model home - has actually finished construction, and only a few of the others have barely started construction. These are also $600-$700K houses.

Looks like the numbers are moving up -- however, those numbers will not hold assuming the government cuts its spending by 40%, which is essential for austerity measures to walk in the long-run -- we need to see 40% cuts in government spending, even if those cuts lead to economic depression -- austerity is what the people want, so we should get on with that, even if that means housing starts are halted over the coming decade -- austerity can only work if the cuts are savage and painful -- the proxy indicator for the success of austerity will be suffering, the more of which will indicate austerity is working out for poor people who now earn less than $250,000 annually -- I would have preferred monetary expansion, but austerity is the future whether i like it or not -- accredited investors should be preparing to make money during the coming austerity and economic depression...

Small housing improvement will help the economy some. The more the better. The stock market is not the same as the economy. After Europe goes into a serious recession perhaps along with China, earnings for companies will decrease a lot and the stock market with them. The economy in the U.S. should do relatively well to stocks as the economy is more independent of international trade than earnings of big corporations.I am already short but it you are not experienced in that, wait until the European summit is over on June 28 as after all, Germany might decide to save the continent and stocks rally.

So many are saying China is heading to a hard landing, while others insist China's growth will collapse. I'm really interested in getting the real data on China. I'd like to follow the data rather than the talk. Do you have a reliable and credible recommendation? Many thanks.

Benjamin, I would have chosen monetary expansion, however the world has outvoted that course in favor of austerity instead -- given that path, we all need to support savage cuts in government spending regardless of the suffering that results -- the long-term unemployed and/or unskilled should probably consider emigration to other countries as the US prepares to repeal Obamacare, and probably most of Social Security and Medicare -- austerity will be forced upon the American people at the point of a gun when necessary -- that's how austerity works -- human suffering will be the proxy measure for austerity's success -- however, austerity can work to improve dividends, especially in the defense industry and heavy equipment manufacturing sectors, though the price of austerity will be the disenfranchisement millions of Americans along the way -- I would add that for austerity to work, only uniformed personnel can remain on the government payrolls -- political positions will become non-paid positions held only by the rich -- everyone else working for or relying upon the government will have to join the private sector, emigrate, marry into money, become a crimimal, or perhaps commit suicide -- what's important is that capitalism will be saved -- accredited investors stand to win big in the coming decade of austerity -- everyone else doesn't really matter from perspective of the austerity hawks...

PS: Once the rioting starts, I suspect the government will "mow down" the instigators in the streets and "sort out" what is happening later...

PPS: What we see in Greece and soon, in Spain, is the future of the US -- however, the advance of Federalism is not going to let poor people (those earning less than $250,000 annually) stand in its way...